Kevin, over at Evolving Excellence, raised a similar issue about misaligned incentives and misleading metrics in healthcare (thanks for the mention, Kevin).

This article, linked above, from the WSJ, focused on Seattle’s Virginia Mason hospital, a hospital that has done a lot of lean work via their “Virginia Mason Production System.” This was sent to me by a few observant blog readers, so sorry for the delay in getting to it on the blog.

One problem in healthcare is the “waste of overprocessing” — via unnecessary or wasteful tests. This shows up as wasteful MRI’s (high cost) or in the practice of drawing a “rainbow” of tubes for each patient showing up at the ER (drawing multiple tubes that have different colored caps indicating different types of testing…. long story, but it’s often wasteful, as many of the tubes don’t get used or the test results end up being irrelevant). But, the hospital gets paid for doing the work (rather than for the results), so the “waste” is often a matter of conscience.

As an example of the screwed up incentives in healthcare:

“…the hospital revamped how it treated some expensive ailments, cutting down high-tech tests and high-end specialists.

But a troublesome pattern emerged: The more cost-effective it became, the bigger financial hit the medical center took. “Everyone gained but Virginia Mason,” says its chief of medicine, Robert Mecklenburg.”

Virginia Mason reduced excessive testing, which meant they got paid less, even if the outcome for the patient was the same (and the payer/employer saved money).

With each MRI that Aetna and the employers avoided at around $850, Virginia Mason lost about $450 in profit. The payment system of government-sponsored Medicare, which private health plans also use as a template, tends to reward the big capital expenses of buying high-tech machines such as MRIs. The more the machines are used, the bigger profit margin they pack. Meanwhile, reimbursement fees for doctors’ visits have stagnated.

“The payment system is so toxic,” says Francois de Brantes, a former health-care program director at General Electric Co. “Unless you tackle it, any health-care reform doesn’t have much chance.” Mr. de Brantes coordinates a program funded by employers that pays doctors bonuses based on patients’ outcomes.

Lots of interesting examples of systemic waste and misaligned incentives in the article… at least the WSJ gives them (and Toyota) credit for their lean improvements:

Virginia Mason routinely receives top marks for quality and patient safety in local and national report cards rating hospitals. The medical center has pursued efficiency by adopting some assembly-line methods of Toyota Motor Corp. and Hitachi Ltd., which hospital officials and doctors observed on a visit to Japan in 2002. For instance, Virginia Mason rerouted patient traffic in its cancer center, cutting the time patients had to wait for chemotherapy from four hours to 90 minutes.

At least Virginia Mason is being a leader and is trying to do the right thing. Rather than making excuses, they are trying to change the system for the better. Did you hear that, General Motors?